National Development Bank’s (NDB) net profit has decreased by 34% YoY to LKR299.3 mn in 1Q2010. The net profit dip during 1Q2010 was mainly attributable to the drop in net interest income by 8.5% YoY and 19.6% YoY increase in operating cost. Thus the gains made in other income, improvement in provisioning costs and reduction in tax bill has not been able to off set the negative impact.
The loan growth expected to gather momentum 2H2010 onwards, NDB’s net interest margins would continue to be intact at around 4.0% - 4.5%, whilst continuing to be unbothered with the industry NPL’s since enjoying the upside of the best quality asset book. Further without exceptional capital gains from bonds during 2009 we maintain our 2010E forecast at LKR1,556.7 mn (down 27% YoY) and 2011E net profit forecast at LKR1,809.6 mn (up 16% YoY). The share continues to offer good value trading on 11.2x forecasted 2010E earnings and 9.6x forecasted 2011E earnings whilst trading on 1.1x PBV.
Interest income has fallen 17% YoY to LKR2,556.4 mn in 1Q2010. NDB's interest income has fallen by 17.3% YoY to LKR2,556.4 mn in 1Q2010, mainly due to a 21.4% YoY dip in interest income from loans and advances to LKR1,678.5 mn whilst interest income from fixed income securities has also dipped by 8.1% YoY to LKR878.0 mn. The dip in interest income from loans and advances is on the back of low interest rates though performing loans have recorded a 3.3% YoY growth. The 21.5% YoY reduction in the Treasury Bill and Bond portfolio (held to maturity) to LKR15.5 bn (which is approx.16% of the banks' asset base) has resulted negatively on income from fixed income securities.
Interest expenses have reduced 23% YoY to LKR1,499.2 mn in 1Q2010. Group's interest expenses have reduced 22.6% YoY to LKR1,499.2 mn in 1Q2010, on the back of 44.5% YoY reduction in other interest bearing liabilities to LKR578.5 mn which is largely attributable to 8.8% YoY dip in borrowings.
Net interest income has dropped 9% YoY to LKR1,057.2 mn in 1Q2010. The dip in interest expenses has not been able to off set the reduction in interest income which has resulted in a 8.5% YoY drop in net interest income to LKR1,057.2 mn in 1Q2010.
Non interest income has risen by 13% YoY in 1Q2010. Non interest income has grown by 13% YoY to LKR551.5 mn in 1Q2010 where it was mainly supported by 3.8% YoY increase in other income to LKR352.2 mn and increase in foreign exchange income by 8.6% YoY to LKR167.8 mn.
Non interest expenses have increased by 20% YoY in 1Q2010. Non interest expenses have increased 19.6% YoY in 1Q2010 mainly on the back of 22.9% YoY increment in personnel cost to 346.5 mn and near 17% YoY increase in other overheads to LKR374.3 mn. Increase in operating expenses were driven by branch expansions carried out by the bank.
Provisioning cost has dipped 34% YoY to LKR70.4 mn in 1Q2010. Total provisioning cost has dipped 34.3% YoY to LKR70.4 mn due to a 53.3% YoY reduction in specific provision to LKR89.1 mn and 13.7% YoY improvement in recoveries to LKR70.5 mn during 1Q2010. However the quality of NDB’s
loan book is unmatched with the gross NPL ratio at 2.4% (vs. an industry average of approx. 7%) and the net NPL ratio at 0.5%.
Total tax bill has reduced 20% YoY to LKR408.6 mn in 1Q2010. Value Added Taxation on banking income has reduced 8.6% YoY to LKR167.3 mn whilst tax on consolidated profit has also reduced 25.9% YoY to LKR241.3 mn enabling to reduce the total tax bill by 19.7% YoY to LKR408.6 during 1Q2010.
However effective tax rate remained at circa 52% levels. Net profit down by 34% YoY to LKR299.3 mn in 1Q2010. Consequently with 8.5% YoY dip in net interest income, 19.6% YoY increase in operating
expenses, NDB’s net profit has reduced by 34.1% YoY to LKR299.3 mn in 1Q2010.
Forecast 2010E net profit maintained at LKR1,556.7 mn (down 27% YoY). With private sector credit growth to gather momentum 2H2010 onwards coupled with improving economic conditions the banking sector outlook remains positive. NDB’s net interest margins would continue to be intact at around 4.0% - 4.5%, whilst continuing to be unbothered with the industry NPL’s since enjoying the upside of the best quality asset book. Further without exceptional capital gains from bonds during 2009 we maintain our 2010E
forecast at LKR1,556.7 mn (down 27% YoY) and 2011E net profit forecast at LKR1,809.6 mn (up 16% YoY).
Share offers good value on 11.2x forecast 2010E net profit. The share continues to offer good value, trading on 11.2x forecasted 2010E net profit and 9.6X forecasts 2011E earnings and 1.1X PBV
Courtesy - Asia Research
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